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Philippe Despierre

The Brexit and your SAP system

 Nov 19, 2018 12:02:27 PM by Philippe Despierre

The Brexit and your SAP system – What could be the impact?

On June 23rd, 2016, a majority of the British voters supported leaving the European Union. The actual procedures started on March 29th, 2017, when the UK government invoked “Article 50” of the Treaty on European Union.

The United Kingdom will actually leave the European Union on March 29th, 2019 (at 11pm UK time), the period for negotiating a withdrawal agreement will end unless an extension is agreed. At the moment of writing, the results of these negotiations is unclear.

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It is without any doubt that the decision by the UK to leave the European Union will have a huge impact on all economic activities within the UK itself, and within all European Union member states. Since many business processes will be affected by the Brexit, like invoicing or legal reporting, a heavy impact on the configuration of ERP systems is to be expected.

SAP is closely following up any changes that might be necessary to support ERP systems in the Brexit changes. They have bundled their activities in OSS note 2546068, which is today (November 2018) still quite short. We can expect SAP to extend this OSS note in the coming months.

Although the impact of Brexit on our SAP systems is still vague, there are surely three areas where we can expect the necessity to do configuration changes:

  • Changes in the organizational model
    • Because the UK is no longer part of the European Union, it might be necessary from a company perspective to create new companies in the UK or outside the UK, to have a beneficial structure from tax point of view
  • Changes in tax determination
    • Since the logic to determine the correct tax code is an automatic mechanism in the SAP system, a complete review of the tax determination mechanism will be required
  • Tax reporting
    • All outputs related to tax (invoices, tax declaration, EC sales lists, …) have to be reviewed, in order to be compliant with the new situation
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  • Changes in the organizational model

Any company code that is created in the SAP system with country ‘GB’ is no longer a company code within the European Union. The same is valid for any business partner (customer, vendor, bank, …) that is located in the United Kingdom. These facts will mainly require updates in master data fields (for business partners) and configuration data (for company code settings).

Since beneficial structures like EU triangular deals can no longer be applied, it can even be necessary to create new entities in the UK or elsewhere in the European Union. The SAP system will have to be configured and tested to support the new organizational structures, and the changes in the existing organizational elements.

  • Changes in tax determination

This is the area where, according to me, the Brexit will have the highest impact on SAP systems. Since the country code “GB” will no longer be an EU country, many changes will have to be made in the tax determination procedures:

  • The tax procedure for the United Kingdom (TAXGB) might have to be reviewed completely, depending on the decisions that are made by the UK government around VAT calculation for foreign business
  • The tax determination procedure (in standard SAP, this is the access sequence MWST) will require updates, both in the configuration (accesses, requirements) as well as in the master data: all condition records where GB is either the departure country or the destination country have to be updated.
  • Tax codes for EU business in the TAXGB tax procedure will have to be disabled, as no intracommunity business can be done any more from within a UK company.
  • All tax-related master data in customers, vendors, plants or business partners has to be updated. In many cases, specific tax indicators have been set up to support typical EU flows like triangulations. These have to be reviewed.
  • Tax regulations towards small regions (Isle of Man, Jersey or Guernsey) has to be reviewed as well, since a change is very likely there.

Next to this, any intercompany process where a UK company is the sending or the receiving company will need a scan as well. Usually, invoicing between companies that are on the same SAP entity are fully automating these processes, including tax determination. This EDI tax determination (transaction OBCD) needs to be changed as well.

Last but not least, we can expect that after the Brexit, the UK government will impose some kind of customs duties mechanism. These customs requirements, whether they are configured in SAP ECC or in a trade solution like SAP GTS, will also create the need to do updates in configuration as well as in master data settings.

  • Tax reporting

With the United Kingdom leaving the European Union, many outputs will be affected, both for UK company codes as well as company codes in other EU member states. Today, we expect changes at least in following domains:

  • Texts on outputs: any texts related to VAT exemptions will have to be reviewed and updated
  • Intrastat: Since the UK is no longer an EU country, there will be no need any more to declare intrastat for UK companies. In company codes of other EU member states, business to the UK will no longer have to be reported
  • EC Sales Lists: Like for intrastate, for UK companies, this requirement will disappear. In other EU member states, sales to a UK company code will no longer be considered
  • Customs reporting: Business from the UK to EU member states will be considered as export, and will have to be reported to customs accordingly.

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Conclusion

Although the ruleset that will be valid after the actual Brexit in March 2019 is still unknown today, we can expect a serious impact on SAP systems in the first half of 2019. SAP is preparing itself and deliver the necessary changes, patches and updates.

It is my opinion that as a company that is running SAP, it will be necessary to set up a project to cope with all the necessary changes.

This SAP project is more than a pure technical change in SAP configuration, and also more than some mass changes in master data fields. The Brexit will require thorough testing of all existing business flows in your company, as well as time to set up and test any new legal entities or branches.

A cooperation between business and IT will be vital to prepare the system and the people for the new situation after the Brexit in March 2019.

Any questions or remarks? Please feel free to contact us!

Topics: SAP, Finance, 2019, europe, Brexit, OSS, TAX, European Union, Expert